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I can't emphasize enough, folks, when we learned this decades ago with Bloomberg on the economy, you make your luck. Paul and I are committed to getting voices. We don't know when we need them. Right now, we get lucky. We have Mona Mahajen with us with Everard Jones. She has the most prestigious finance computer degree in America. Good morning, Palo Alto. This is out of Wharton's School, the double
degree Finance and computer science. As mister Zuckerberg blows up, Hey I Mona, We're going to rip up the script here with you, and don't give me you can do it. I know that. What do you tell Edward Jones producers and clients about the plan of AI? Is there a path or are we making it up as we go in America?
Yeah? Thanks Tom, and look, AI we think is here to stay. There is certainly a roadmap ahead of us that looks in our view pretty robust. And in fact, we're in year three of the AI we think cycle or supercycle, and in fact chat GBT was launched almost three years ago this month, and so as we look forward, you know, what we tell our clients is, look, we've had three years of tech and AI outperforming the rest of the market, and twenty twenty five was no exception.
As we look into twenty twenty six and beyond, yes, we want to own parts of the tech and AI market, but we want to make sure that we have diversification in our portfolios. Because YESTERDAI starts with infrastructure players, hyperscalers, data centers, but hopefully over time it goes to those actors that benefit from the productivity gains, and that's where we'll see some of the market games as well.
With a geography, the history, the character of Edward Jones is America through the filter of Edward Jones buying the AI story.
You know, certainly as we look across industries and sectors, we are starting to see AI adoption ramp up. So we are continuing to feel like this is a story that is here to stay, and we liken it to what we saw back in the late nineties with the Internet and dot com revolution. Now we would say probably, and I heard Dan Ives on your station talk about it, it's a ninety five era. We'd probably say we're a
little bit further along, maybe ninety six ninety seven. But nonetheless, we think that this is a technological innovation that will have impact on all sectors and all industries and the job market by the.
Way, as well, Mona, we've had some really really good earnings growth coming out of Corporate America this year. The third quarter numbers are really strong. In particular, Is the earnings growth story good enough to support this market going forward in twenty six, Yeah.
It's a great call out look s and P. Five hundred. Returns are typically driven by two things, one earnings growth, two valuation expansion, and so as we look out in the year head the scope for valuation expansion in our view isn't as strong, especially in those parts of market that have already experienced tremendous kind of valuation gains, and most of those are in the growth and tech parts of market. There are parts of the market that probably will benefit as a FED continues to cut rates to
see valuation expansion. But the main leg of the stool that we're leaning on for gains going forward is earnings growth toierpoint, And in fact, we're ending twenty twenty five with a pretty strong almost ten percent earnings growth picture, and we're looking at twenty twenty six and seeing another potential double digit for S ANDP earnings growth. So not a bad backdrop in from that perspective from a market gains outlook.
So Mona talk to us about that. We're going to hear from the Fed next Wednesday, when Bloomberg will have full coverage of that. Of course, how important is the rate cutting cycle to stocks in twenty twenty six. I'm not sure what's been baked in and what hasn't been Yeah, you know.
We think that markets are pricing in a FED that is going to take the Fed funds rate to a neutral level, and we think that's a reasonable base case. You know, at four percent or so, we're still relatively restrictive if you think inflation ends up in this two and a half to three percent range or maybe over time two two.
And a half.
Historically, the Fed likes to bring rates about one hundred bases points above inflation. So anywhere in this three and a half percent range we think makes sense for a terminal FED funds rate. And we do think, you know, as a FED lowers rates the economic impact usually we see it with a lag, so three to six months
later you can start seeing consumer demand pick up. Of course corporate and consumer borrow start to pick up as well, and so we do think parts of the market that are more economically sensitive cyclically sensitive, you have the scope to play some catch up.
Here Mona, thank you, thank you, thank you for coming on.
Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Neil Sharon joins us here from the University of York and of course London as well. He's a capital economics what's the signal headline at the top of your outlook for next year? Given the upside down world of Stormer in the United Kingdom.
Well, the UKs is kind of cold, wet island that doesn't really work for the global economy. I have to say, I think the Bank of England's going to cut more markets are pricing in. That's the big call for next year for the UK. I think the big issue globally is whether the US can continue to outperform develop markets, and I think the answer is it probably will. Yes.
Is it the AI story which has been such a theme over the last two or three years, and I'm not sure if it feels worn out, but there's definitely a little bit more cross winds cross current headwinds for the AI story.
I think that's right. I think there is a bit more kind of caution, I would say, and you pick that up when you go and speak to clients. There's certainly more caution. But my view is it's got a lot further to run. Whether it's got a lot further to run in markets or whether there's some air inflating in the markets, I think is another question. But in the real equity, I think this is a generational technology.
It should be regarded as a general purpose technology. It will transform productivity growth over the long run, and the US is at the anger.
You've very publicly written about this. It's in your note for the for twenty twenty six as well. There is a reality of a sharp disinflation, if not price decline in China. How is the deflation exported to the West.
Well, profoundly so. If you look at Chinese export prices since twenty twenty two, they've fallen by about the twenty percent. Export prices from the rest of the world have been broadly flat over that period, down twenty percent in China. And this is a manifestation of the over investment that's going on in China. It used to go into the property sector, obviously properties now and it's back. It's now going into the manufacturing sector, and manufacturer is a cutting
price to shift volume, and it's flooding global markets. And the US is obviously pushed back the tariffs. The rest of the world has not really decided what it's going to do about it.
In your history of central banks, is that enough of a tertiary or secondary idea that the FED can justify multiple rate cuts?
I don't think so, not in and of itself. No, it will perhaps zero point one point two percent off of headline inflation in advances. Yeah, it's not. It's not a big deal.
We've got that CFA, it's teen swots, don't.
Worry about it.
Don't worry about it.
So it's China and net positive negative for this economy here going forward here, I'm just not sure where are we selling them stuff? Are they giving us supply coming out of the China.
Well, I think we're definitely through the phase where the rest of the world had decided that globalization was an unalloyed good thing, right, that we should embrace it, and I think we're much more cognizant of the downside. Yes, we get to consumes.
I'm still a globalization guy.
I don't know, but I think that the thing that has changed, and they don't teach this in economics, and they should do, is the intersection between economics and national security. The point that is the issue that has people in the US are waking up to and people in Europe are just starting to wake up.
So the modern military industrial complex is that enough of a fiscal oomph to make nominal GDP in any given country, including the US, better than good.
It's probably in the case of the US, Yes, it's providing quite a lot of support to demand in the US. If you look at the share of government spending taken up by the military. See, the big question is will it all this transformed growth prospects in Europe? And we've seen a big fiscal expansion or planned expansion and fysical expansion in Germany.
It's right, what does ye expect?
It's not going top it's not going to make a big difference. So we've raised our growth forecast for next year from zero point five percent. You're on your growth in Germany and GDP to one percent. So it's barely moving.
It's unbelievable.
Well, I mean, it's growth all right. Central banks. It seems like central banks around the globe are cutting raising with the exception of the Bank of Japan.
How impactful z.
F for twenty twenty six global growth?
Well, the key question here is that you've got to look at what central banks will do with policy versus what's priced into the market. Okay, and my bet is that the market has got a bit too carried away with the idea of federates next year. US economy is holding up reasonably well. Yes, employment is slowing, but productivity growth is accelerating. Inflation is still probably a bit too high for comfort. You've got a fiscal deficit of six
percent of GDP. So my bad is that the Fed does not cut by the four that the four twenty five BIFs that are comedy priced into markets. In contrast, I don't think the market's quite taking seriously that the prospect we might get lower rates, particularly in the UK, but also in the Euros next year.
I did an event yesterday. I'll talk about it later, folks, David Kotok and Kathleen stuffs and global interdependence. McKee was there, Yeah, the conversation with low brainer mckey's for the heavyweight. I know, I know, and I'm sitting there and up comes Catherine Man. I get a big Catheryne manor hug. That's where they racket id yep. And it reminded me of the wonderful descent of the Bank of England. Neil, you're one of
the greatest transatlantic people I know. Do you embrace that the FED should enjoy the descent of Catherine Man in the Bank of England?
Absolutely?
Yes.
I think that what we've we've perhaps suffered from with monetary policy and in the fiscal policy over the past decade or so is perhaps kind of groups group think. So I think the ex that you get some descent within within policymakers. That's a good thing. It should life in the debate, it should shaft in policymakers' minds. It should lead to better policy outcomes.
From where you sit from a distance, the uproar over Kevin Hasset right now, if you look at if you look at the debate, can the presidents and the governors push against any given new chairman?
Well, I think this is an existential question hanging over markets in twenty twenty six. In theory, one voice in twelve that votes, one voice in nineteen on the committee. The question is that how dominant does that voice become? How and to what extent can it shift attitudes on the committee. My sense is that Hasset might end up being a bit more orthodox than some people expect. It looks to me from a distance like an old school Republican,
perhaps talking a good game to get the nomination. But let's see, how was.
He ecuonomy over in London? What's it like in London these days? How are folks feeling over there?
Well, londoner comes to New York. Expensive in New York. I'll tell you that thirteen bucks for a sandwich from pred It's not that it's not that expensive in London. The UK economy is in a place where it's not you know, it doesn't feel terrible, but it's not great either.
We're looking at the norm though for England.
I mean it's northern Europe I think, I think particularly compared to if you look at the growth performance of the US economy versus not just the UK, but Europe more generally concerned into Europe, it's night and day over the past decade. You plot pot a child of GDP and look at the register it's opened up.
Lisa, can you take the other sweet greens for like a pre launch for it's like a scandal here it is, there's no cop it's just like what it's like the green stuff? Yeah, twenty bucks.
But there's an interesting point here where everyone is obsessed with the kind of affordability and cost of living and politicians are saying, well, inflation is coming down, and the point is it's not that inflation's going out. The price level is still.
That's Stephen Roach just wrote a brilliant substeck on this overt eale Youni versu thank you for we're going to do more on that first level as it come on down. Okay, are you are you moving to New York?
I wish I was callorforda evil hosterday.
I loved that, miss sir and Capital Economics. Thank you so much for Darkning. The dory is from Always London.
Stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty We go ever stronger.
In this eight o'clock hour, Heidi Crabo reticker with his senior fellow of g Economics at the Council on Foreign Relations. Heidi, I don't even know where to begin other than is a complete amateur. Paul, Let's talk to mister Putin. Yeah shocked, nothing got done? No, Heidi, did we expect any other outcome? So?
I think, you know it's it's exactly as you said. This is really you know, a question over the team that's been sent in particularly you know Witkoff and believing Putin and falling you know, again and again for you know, the dangled promises of investment, while it's clear that Putin is playing for time and and helping for a fracture in NATO, because this from the beginning has not just been about Ukraine. It's been about fracturing NATO, which is a much bigger picture item for Vladimir Putin.
To what extent should President Trump get involved here? I mean, mister Whittaker, mister Rubio meeting with Putin, that just doesn't feel like that's a recipe for really moving the ball forward here.
Well, you have, I mean, you have sort of a divided approach to within the Trump sphere with witkof Vance and Jared Kushner on one side. You've got Rubio trying to play Kate into a certain extent and steer the ship back on in negotiations to a better place. And I think at the end of the day, Trump wants to be he has this cork constraint that he does not want a visible Ukrainian defeat on his watch. He
wants a Nobel Priest prize. So I think in terms of his getting involved, you know, he wants concessions from Ukraine, but he doesn't want to preside over a collapse.
Okay, Heidi, you know it's just us. It's like forty two people listening coast to coast and worldwide as well. Heidi, What would Colin Powell do? What would Robert Gates do? What would Secretary Rice do? Or selected other Democratic State Department diplomacy people. Would they go over there and hope for something so that any given president can win a prize like price Patrol.
I expect.
We're looking you know, you know, we're looking at a very different approach to foreign policy and particularly visa v Russia. We knew that coming in, you know, when Trump came into office, that that that that he was looking for a very different relationship with Vladimir Putin. I think, you know, looking at way's traditional, you know, strong Republicans and Democrats would deal would deal with this would probably be to make sure that Ukraine, first of all, was in the room.
You know, Ukraine and the Europeans have really been completely sidelined in this. It's been a you know, a you know, a strong a strong man. Trump and Putin divided, you know, dividing Europe play right now. And I think, you know, Zelensky has it right. It's there could be a moment for an opportunity to end the war, and there is a lot of diplomatic activity going on. But we have we have not put pressure on Russia. I mean, the Europeans are putting pressure on Russia, but the United States
is really not. We haven't we haven't been as aggressive with sanctions.
We haven't.
You know, we haven't really backed our allies in supporting Ukraine. And certainly if the US, the US is putting certain pressure on for example, India for buying for continuing to buy Russian Russian oil, but it really isn't putting the it isn't really putting the thumb on the pressure on Vladimir Putin. And I just don't think absent that you're going to see any movement.
Okay, so we're seeing no movement. I think Paul and I are asking the same question where we say in.
February, well in February, I mean coming up on the on the anniversary of this.
I mean, does Lenski run out? I mean serious stuff. Does the Leznsky run out of money? Does he go out and sink six more oil? Tankers out in the Black Sea or orherever? Is it a drone war? I mean, where are we in this? I think all of us listening, Heidi, with your wonderful work at the consul and Foreign Relations. The bottom line is we're benumbed by this, Lisa. How long has it been? Three years?
The wars?
Three years? Four years?
Three years?
Yeah, yeah, Heidi, it's you know, it's yeah in America, wars four years, that's it. Yeah, you know, that's what was a problem with Vietnam. Heidi. Where are we which? Which ghost are we fighting? In February? We're just going to have Ukraine run out of money? Is one talking point.
So you know, I do think there are more people in the United States and certainly in Europe paying attention to this because you know, for Europe this is pretty existential. But there is this ticking time bomb in the back, in the background, which is where's money going to come from to pay for not only the military, you know, the acquisition of arms and the arming of Ukraine, but
also just for reconstruction, for paying pensions. And the IMF was just there and they reached an agreement on a new a new facility for eight point one billion dollars and that's smaller than I think.
You know, Ukraine was hoping for.
And they've tagged the financing gap for the next three years at one hundred and thirty six and a half billion dollars.
That is huge.
Just in you know, twenty six twenty seven, they're looking at sixty three billion of a financing gap, which means the Europeans, since the US is not going to be there, the Europeans really need to step up. They either have to pay it out of their budgets or they have to look to this reparation loan that's been under negotiation for a very long time.
Do you've got to continue this conversation. Just bring in Heidi about Retika. She's with the console on foreign relations.
Stay with us. More from Bloomberg Surveillance coming.
Up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty the newspaper.
So I mean they're lighting the tree tonight. Are you going to the tree lighting?
Lisa, No, it's a madhouse.
It's a mad house.
Tree is almost as big. I don't know if you know this. The tree is almost as big as scarlet foods. Is a blackyard now here. It's it's ginormous.
Tree is great this year, it looks well, it looks great every year.
Yeah, it does.
I've done it though, I've done to go and I'm trying to push to people. That's when you were picture, we're TV. We're working, yes, exactly doing ice.
Skated there and the family paid me not to. Oh what do you got today?
Okay, this is a look into It's interesting when on the terminally you have to check it out. How more tired Americans they're spending more for products that are going to save them time on tedious tasks. For example, laundry. Okay, now, my kids have been doing laundry since they were ten, which means a lot of different people doing laundry all at once, which means there's fights over who forgot to move it from the washer to the dryer. Then you have to redo it in the wash because it starts
to smell. Okay, so enter this two thousand dollars washer slash dryer combo all in one unit that will do it in under two hours in one unit.
Okay, so more.
People are buying those blue reggas, saying Gee, sold like ten times as many as those as they expected. Samsung has one too, So it's more about the products that people are buying to save them time, Like there's a seventeen hundred dollars oven that can make restaurant quality pizza and two minutes. So things like that, and how people are paying more for services, like, for example, they have
Walmart Walmart Plus. They can come and they put the groceries away for you, you know, in the refrigerators.
So I used to have people doing stuff for me. I don't have people doing stuff for me anymore.
No, I don't.
I don't have people anymore.
So would you pay more to save time?
Absolutely?
Yes, Absolutely, that's.
That's the thing.
Okay.
I think I would, And I'm el Chipo, so I would do that if it saves me time. Okay, this one is for you, Paul. It's about skiing, Okay, So I know this is big for you. So when you look for like alpine glamour, what do you think do you think Swiss apps? Okay, that's what do you think, right, Sat Maritz. It's like this very fancy, fancy place, twenty seven hundred dollars a night you could pay. But the Wall Street Journal is saying travelers are travel experts are saying.
Go to Idaho. Okay, it's Sun Valley.
Have you been there?
Awesome?
It is awesome.
It's not as big as some of the other Western rest resorts like Vail, but it is just awesome skiing. The people are great, the facilities are great. I love some and I went in the summertime. I went there for the Allen and Company conference, which is beautiful.
Well did you see there?
No, no, but I see a lot of medium mogules. We got some good interviews out there. So but the skiing out there is awesome, you know. And now they have direct flights from the New York area into whatever they do.
Or whatever.
So it's not as fans as it kind of laid back like glamorous, Yes exactly.
It is not aspen. It is not Veil, but it is very I think, very high end, very very nice.
I like it.
I'm a big big fan there. That being said, we're going to add the boys are going to Aspen this year. Oh you are the boys trip. Okay, maybe you should change it. Well, we did that, We're gonna We're gonna do that maybe next year.
All right, all right, okay, this one's story. Last story is interesting. Michael Barr actually just touched upon this an interesting trend. Just a month after Zoramondani was elected as New York City's mayor, so sales of Manhattan luxury homes actually jumped.
This is according to Miller.
Samuel Douglas Eleman buyer signed contracts one hundred and seventy six homes worth four million dollars or more in November. That's up twenty five percent from the deals that were in't the month before.
It's got to be Wall Street.
This is what it is.
I've been in most uses, working in this town for forty years. It's never changed. If you're anywhere in the world and you want to park money safely, you buy Manhattan real estate and that's you're any part of the world. You don't have to worry about the government come and taking your money or doing anything. You just just go buy a co op in the city and you know, come back ten ten years later it'll be higher value and then that's what's happening.
I think, Yeah, there's condos that what is it, the seventy four in the Upper east Side, Billionaire's Row, like those were some of the big, the big purchases out there.
Yep.
So realtors are saying there is no ever, so many of you can't keep Manhattan down.
Ever, yeah, ever, I don't disagree. And right now that's going to be a whole new search. Yep. With all of the good tidings on Wall Street, least'm gonna tay you to thank you so much the newspapers.
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